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Old 06-15-2009, 07:16 PM
1,532 posts, read 1,376,324 times
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Kitco - Commentaries - Howard Katz
the following is a piece by Howard Katz:

According to the June 1, 2009 Federal Reserve release H-6 (table 3), demand deposits plus other checkable deposits are equal to $740 billion. But according to the memo this reported figure is only half of the real deposits. Thus the true number for bank deposits is $1480 billion. Adding back the missing $740 billion gives us a money supply of $2.34 trillion (1.6 + .74).

Calculating from end May 2008 to end May 2009, the U.S. money supply has grown from $1.37 trillion to $2.34 trillion. This is an increase of 70%.

To put this figure into context, the previous high one-year growth in U.S. money supply was 16.9% in 1986. The money supply figures for the late ‘70s, which gave us a 13.3% rise in the Consumer Price Index, were in the range of 8%-9% per year.

Here is what this means for the price of gold.

My previous calculation for the price of gold was $3500/oz. And this was calculated as follows: We are now in an economic phenomenon I call the commodity pendulum. This means that, when the Fed creates money, it has an immediate (1-2 year) effect on consumer goods but a long term (10-20 year) effect on commodities. The commodity pendulum started in 1963 with the Kennedy tax cut and printing of money. Over the next 8 years, commodities did not go up and thus became undervalued in real terms. By 1971, commodities were very undervalued, and began a 9 year rise from 100 to 337 on the CRB index. This was the first upswing of the commodity pendulum, and during this time the rising commodity prices passed through into consumer prices. Thus for this period (1971-80) the Consumer Price Index rose faster than the money supply. Then came the second downswing in the pendulum (1980-1999), in which commodities got even more undervalued than in 1971. This was why Reagan and Bush, Sr. were able to print so much money with only a small effect on consumer prices. The decline in commodities was undercutting the rise in consumer prices and making it smaller. Now we are in the second upswing in the commodity pendulum. It started in 1999/2001 and I estimate that it will run for about 20 years.

To get a conservative estimate of the price of gold at the end of the second upswing of the commodity pendulum, I started with the price at the end of the first upswing ($875). I calculated that consumer prices had doubled from 1980-1999 and guestimated that it would double again on the second upswing (because that is what happened in the first upswing). This meant that prices at the end of the second upswing of the commodity pendulum should be (at least) 4 times what they were in 1980. Multiplying 4 x $875, we get $3500, and this was my original projection.
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Old 06-15-2009, 07:25 PM
Location: Chicagoland
41,314 posts, read 38,470,229 times
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When should we buy?

What should we buy?
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Old 06-15-2009, 07:33 PM
Location: Hoboken
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Scary stuff.

I posted this a while back but I think it is worth a reprise.

Get Ready for Inflation and Higher Interest Rates - WSJ.com
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Old 06-15-2009, 07:41 PM
Location: Raleigh, NC
9,043 posts, read 11,323,362 times
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Schiff thinks it's going to $5000 or more.

Of course, it could go to infinity during hyperinflation. How many Zimbabwe dollars is an ounce of gold worth over there? How many marks was it worth in 20's Weimar Germany?
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Old 06-15-2009, 07:45 PM
Location: Charleston Sc and Western NC
9,274 posts, read 22,765,250 times
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Inflation, gas prices and interest rates are about to go through the roof. This is a certainty..
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